529 State Tax Benefits
New Mexico Residents
In addition to the federal tax benefits, 100% of contributions to your 529 account with The
Education
Plan are deductible from your New Mexico state taxable income each year. New Mexico is one of
only four
states in the nation to provide an unlimited state tax deduction for contributions to its 529
plan. (The
Education Plan is New Mexico’s official 529 plan. Contributions to other states’ 529 plans are
not tax
deductible).
If you are a New Mexico resident, earnings on your 529 account and withdrawals from it are not
subject to
state taxes when used for qualified educational expenses.*
*New Mexico does not permit state tax deductions for
contributions used to pay for K-12 tuition payments
and transfers to an ABLE account. It likely will not allow deductions for contributions used
to pay
for
student loan repayments and apprenticeship programs. The amounts deducted for these purposes
may be
recaptured as state taxable income in subsequent years. Click here for more information.
Non-New Mexico Residents
If you are not a resident of New Mexico, you will still receive the federal tax benefits outlined
above.
Some states have tax benefits for contributions to an out-of-state 529 plan. The map below can
help you
determine your state’s tax benefits and which plan is right for your family. Before investing,
we
recommend consulting a tax advisor to determine your state’s tax benefits and if it imposes any
limitations on the use of 529 contributions.
Understanding the 529 Tax Landscape State by State
Get the most out of your state tax benefits.
New Mexico
Home of The Education Plan
Tax parity*
These states offer tax deductions or credit for contributions to any 529 plan,
regardless of
state.
*Please Note: State tax benefits in tax parity states apply to contributions in any 529 plan.
Tax
neutral
These states do not offer tax deductions or credit for 529 contributions, or have no
state income
tax.
In-state tax
benefit
These states offer tax deductions or credit for contributions to the
in-state 529 plan only.
Gift Taxes
A contribution to a 529 plan is considered a completed gift from the contributor to the
beneficiary. The
first $15,000 ($30,000 for a married couple filing jointly) given to each beneficiary each year
is
excluded from federal gift taxes. (Other gifts given to the same beneficiary must also be taken
into
account when calculating the total gift in a given year.)
A special provision in the IRS code allows you to use five-year gift tax averaging when
contributing to a
529 plan. This means you can contribute up to $75,000 (or $150,000 for a married couple) to a
529
account in a single year and choose to have it treated as if you had given it over a five-year
period
for tax purposes. This can be a helpful way to jump-start a 529 account early on without
incurring
federal gift taxes.
We recommend consulting with a tax advisor about gift taxes and your specific situation before
investing.
Using Your Tax Refund to Fund Your 529 Account
Reinvesting your annual tax refund into your 529 account is a simple and effective way to grow
your
account every year. While it can be tempting to spend a refund on a single indulgent purpose,
putting it
into a 529 account will put it to work for you over the course of many years and pay dividends a
purchase never will.